SOCIAL PERFORMANCE

The SOCIAL PERFORMANCE SCORE assesses vehicle production impacts on the people charged with vehicle manufacture and assembly and the environment. The score is based on criteria established by the United Nations (UN) Guiding Principles on Business & Human Rights, the UN Global Compact, the UN International Labor Organization's Fundamental Human Rights Conventions, and World Bank Governance Indicators. The assessment focuses on four core areas of interest:

1. Labor and human rights laws, policies and practices in country of assembly to assess the corporate advantage and externalized social impacts of automobile manufacturing;

2. Labor policies and practices of manufacturer to assess corporate commitment to socially responsible business conduct and efforts employed to mitigate gaps found in country of assembly’s social performance;

3. Environmental laws, policies and practices in country of assembly to assess the corporate advantage and externalized environmental impact of automobile manufacturing; and

4. Environmental policies and practices of manufacturer to assess manufacturer’s commitment to environmentally responsible business conduct and efforts employed to mitigate gaps found in country of assembly’s environmental performance.

The distinguished BEST SOCIAL PERFORMANCE AWARD is given to the Brand whose production chain ensures the highest level of protection for the rights of those tasked with all vehicle manufacture and assembly, while also minimizing life-cycle environmental and human health burdens.

SOCIAL LIFE-CYCLE ASSESSMENT

Social life-cycle assessment (S-LCA) is an emerging field that has been supported by the recent work of the United Nations Environmental Program (UNEP) with the development of Guidelines for Social Life Cycle Assessment of Products. The S-LCA Guidelines present key social performance factors to consider when conducting an S-LCA, and provides guidance for the scope, inventory, impact assessment and interpretation phases of the S-LCA. Further, the framework detailed in the S-LCA Guidelines adheres to ISO 14040 and 14044 standards, with appropriate adjustments for the assessment of social and socio-economic issues.

ASG’s social performance assessment adopted the S-LCA Guidelines, but established a very concentrated boundary for the assessment. The boundary begins at the assembly gate of manufacturing and ends at product end-of-life. As this is an emerging field, the scope of the assessment is limited to mostly qualitative data, however the assessment still provides valuable information that adds transparency and creates valued opportunities for market differentiation.

DEVELOPING ANALYTICAL MODELS

We approached this task using the following distinct models:

Country of assembly to evaluate the corporate advantage and externalized social impacts of automobile manufacturing;State Model: assesses labor and human rights laws, policies and practices in
Corporate Model: assesses labor policies and practices of manufacturer to evaluate corporate commitments to socially responsible business conduct and efforts employed to mitigate gaps found in country of assembly’s labor regulations;
State Model: assesses environmental laws, policies and practices qualitatively in country of assembly to assess the corporate advantage and perceived externalized environmental impact of vehicle manufacturing; and
Corporate Model: assesses environmental policies and practices qualitatively for each manufacturer to assess efforts employed to mitigate gaps found in country of assembly’s environmental mandates.

ENVIRONMENTAL JUSTICE

The objective with a social performance assessment is to ensure manufactures are accountable to environmental justice principles, to all peoples in all places. The primary concern in our social performance assessment is fundamental human rights, and the preamble to the Universal Declaration on Human Rights is a relevant guide:

“Whereas recognition of the inherent dignity and of the equal and inalienable rights of all members of the human family is the foundation of freedom, justice and peace in the world,

Whereas disregard and contempt for human rights have resulted in barbarous acts which have outraged the conscience of mankind, and the advent of a world in which human beings shall enjoy freedom of speech and belief and freedom from fear and want has been proclaimed as the highest aspiration of the common people,

Whereas it is essential, if man is not to be compelled to have recourse, as a last resort, to rebellion against tyranny and oppression, that human rights should be protected by the rule of law,

Whereas it is essential to promote the development of friendly relations between nations,

Whereas the peoples of the United Nations have in the Charter reaffirmed their faith in fundamental human rights, in the dignity and worth of the human person and in the equal rights of men and women and have determined to promote social progress and better standards of life in larger freedom,

Whereas Member States have pledged themselves to achieve, in co-operation with the United Nations, the promotion of universal respect for and observance of human rights and fundamental freedoms,

Whereas a common understanding of these rights and freedoms is of the greatest importance for the full realization of this pledge,

Now, Therefore THE GENERAL ASSEMBLY proclaims THIS UNIVERSAL DECLARATION OF HUMAN RIGHTS as a common standard of achievement for all peoples and all nations, to the end that every individual and every organ of society, keeping this Declaration constantly in mind, shall strive by teaching and education to promote respect for these rights and freedoms and by progressive measures, national and international, to secure their universal and effective recognition and observance, both among the peoples of Member States themselves and among the peoples of territories under their jurisdiction.”

STATE MODEL: SOCIAL PERFORMANCE

HUMAN RIGHTS AND LABOR PROTECTION

The State Model assesses the country of assembly’s human rights and labor protection policies and practices qualitatively to evaluate the cost of complying with regulations that are applicable to the manufacturing sector. The underlying assumption in the State Model is that a manufacturing site adheres to industry norms in the country of assembly, which may or may not comply with regulations currently in force.

COST EXTERNALIZATION: LABOR

As discussed in the previous environmental section, the extremely competitive nature of the automotive industry presses automakers to pursue cost-cutting strategies in order to remain price competitive, and labor costs can be a significant cost burden. Sizeable cost reductions can often be realized by moving manufacturing sites to countries with low labor costs, either a result of a less developed economy and/or weak labor protection laws and enforcement capabilities. These cost externalities follow traditional economic theory in a globalized economy, but the real cost is in fact externalized to the labor force and their communities and is not embodied in the price of the product sold in the marketplace. Our State Model incorporates a Social Cost Assessment to more accurately report the cost of manufacturing across borders.

One example can be viewed when comparing Hungary as a country of assembly with that of Sweden. The cost of labor and compliance in Hungary is significantly less than the cost of compliance in Sweden, yet when automobiles are sold in the U.S. market, the financial cost that was avoided by manufacturing in Hungary and that which was externalized to the Hungarian labor force is not passed on to the consumer. In this way, the consumer is paying a premium price for a product that does not embody the same overall value as the competitive product that was assembled in Sweden. According to the U.S. Bureau of Labor Statistics, International Labor Comparisons (August 2013) for automobile manufacturing, hourly compensation costs in Hungary are $10.91 (2012 U.S. dollars). This includes direct pay, social insurance expenditures, and labor-related taxes. Compare Hungary’s hourly compensation costs with that of Sweden’s $51.27, or the United States’ $45.34, or Germany’s $58.82 (U.S. Bureau of Labor Statistics, 2013) and one can see there is indeed a vast difference.

The State Model includes the following indicators to assess the State (country of assembly) duty to protect human rights, including ratification of the United Nations International Labor Organization’s Fundamental Human Rights Conventions:

State ratification of freedom of association and collective bargaining conventions (Conv. 87; Conv. 98);
State ratification of elimination of forced and compulsory labor conventions (Conv. 29; Conv. 105);
State ratification of elimination of discrimination in respect of employment and occupation conventions (Conv. 100; Conv. 111); and
State ratification of abolition of child labor conventions (Conv. 138; 182).

The mere ratification of the Fundamental Human Rights Conventions and the implementation of these international laws into domestic legislation is not evidence alone that such rights are indeed protected for all peoples. Therefore, the State Model also incorporates additional indicators to assess quality of governance and ability of States to uphold and enforce the rule of law. The State Model incorporates the six dimensions of governance as identified by The World Bank’s Worldwide Governance Indicator Project (Kaufmann, 2013), with the underlying assumptions deriving from over 30 unique data sets. The six governance indicators include:

State commitment to uphold the rule of law: state provides access to remedies when human rights and labor abuses occur;
State accountability to freedom of speech: extent to which citizen's have freedom of expression, freedom of association, and free media;
State control of corruption: extent to which public power is exercised for private gain;
State political stability: absence of violence/terrorism;
Effective governance - extent to which government effectively formulates and implements social policy; and
Regulatory Quality: the extent to which government effectively formulates and implements policy that promotes private sector development.

CORPORATE MODEL: SOCIAL PERFORMANCE

The Corporate Model evaluates the manufacturer’s human rights and labor protection policies and practices qualitatively to assess efforts employed by the manufacturer to mitigate gaps found in country of assembly’s mandates. While the State Model assumes that a manufacturing site adheres to industry norms in the country of assembly, which may or may not comply with regulations currently in force, the Corporate Model looks to the manufacture’s commitment to social performance standards that may go above and beyond requirements and industry norms in the country of assembly.

The Corporate Model assesses specific corporate policies and practices to identify core social commitments that displace industry norms with a company’s moral code that crosses all national borders.

The Corporate Model contains 11 social performance indicators:

Corporate responsibility to protect human rights, labor and the environment: managing corporation demonstrates the execution of a corporate commitment to the principles of the United Nations Global Compact and is an active participant;
Corporation expresses their commitment to support and respect the protection of
internationally proclaimed human rights for all through a statement of policy that adheres to the UN's Guiding Principles on Business and Human Rights;
Corporation supports and respects the protection of internationally proclaimed human rights for all;
Corporation ensures they are not complicit in human rights abuses;
Corporation ensures freedom of association and the effective recognition of the right to collective bargaining;
Corporation ensures the elimination of all forms of forced and compulsory labor;
Corporation ensures effective abolition of child labor;
Corporation ensures the elimination of discrimination in respect of employment and occupation;
Corporation supports the precautionary approach to environmental challenges;
Corporation takes initiative to promote greater environmental responsibility and encourages the development and diffusion of environmentally friendly technologies; and
Corporation works against corruption in all its forms, including extortion and bribery.

STATE MODEL: ENVIRONMENTAL PERFORMANCE

COUNTRY OF ASSEMBLY

The State Model assesses the country of assembly’s environmental policies and practices qualitatively to evaluate the cost of complying with environmental regulations that are applicable to the manufacturing sector. The underlying assumption in the State Model is that a manufacturing site adheres to industry norms in the country of assembly, which may or may not comply with environmental regulations currently in force.

COST EXTERNALIZATION: ENVIRONMENT

Due to the extremely competitive nature of the automotive industry, automakers pursue cost-cutting strategies in order to remain price competitive, and environmental compliance can be a significant cost burden. Sizeable cost reductions can often be realized by moving manufacturing sites to countries with low environmental compliance costs, either a result of less restrictive environmental regulations, or weak enforcement capabilities. These cost externalities follow traditional economic theory in a globalized economy, but the real cost is in fact externalized to the environment and is not embodied in the price of the product sold in the marketplace. Our State Model incorporates an environmental cost assessment to more accurately report the true cost of manufacturing across national borders.

To illustrate, let’s compare Mexico as a country of assembly with Canada. The cost of environmental compliance in Mexico is significantly less than the cost of compliance in Canada, yet when automobiles are sold in the U.S. market, the financial cost that was avoided by manufacturing in Mexico by externalizing that cost to the environment, is not passed on to the consumer, but rather used to increase profit margins for the automaker. In this way, the consumer is paying a premium price for a product that does not embody the same overall value as the competitive product that was assembled in Canada, where some environmental compliance costs were internalized.

The location in which a product is assembled should influence the purchase price of the product, but in the automotive industry there is little distinction in this regard. Rather, the price is typically driven by the competitive market set. This is one example where ASG is bringing transparency to the automotive value assessment – those vehicles that are assembled in countries with strict environmental protocols are positively distinguished from those assembled in countries with weak environmental protocols.

These same principles apply with socioeconomic indicators as discussed in proceeding sections. Direct labor costs and labor health and safety compliance regulations differ across countries, yet the cost of the automobile sold in the U.S. market does not reflect the real cost difference between different sites with varying costs of compliance.

Our State Model closely aligns with a model developed by the Yale Center for Environmental Law and Policy (YCELP), the Center for International Earth Science Information Network (CIESIN) at Columbia University and the NASA Socioeconomic Data and Applications Center. The significant work conducted in this area by this collaborative, is in fact used in practice by governments to assess high-priority environmental issues regarding a country’s environmental health and ecosystem vitality.

Our State Model incorporates environmental indicators at a national level, with data sourced from the UN Department of Economic and Social Affairs, World Health Organization, UNICEF, NASA Socioeconomic Data and Applications Center, CIESIN, Central Intelligence Agency, UNEP World Conservation Monitoring Centre, Food and Agriculture Organization of the UN, International Energy Agency, amongst many others.

The State Model includes the following environmental indicators:

State commitment to reducing environmental burdens on human health;
State commitment to improving air quality by controlling releases;
State commitment to improve water quality and access to clean drinking water;
State commitment and regulations to reduce synthetic chemical production and uses;
State commitment to biodiversity to preserve and protect habitat through partnerships, land conservation efforts, wildlife protection and other; and
State commitment to reduce carbon emissions in response to climate change, thereby demonstrating support for the precautionary approach to environmental challenges.

CORPORATE MODEL: ENVIRONMENTAL PERFORMANCE

MANUFACTURER ENVIRONMENTAL STEWARDSHIP

The Corporate Model evaluates the manufacturer’s environmental policies and practices qualitatively to assess efforts employed to mitigate gaps found in the country of assembly’s environmental norms and mandates. While the State Model assumes that a manufacturing site adheres to industry norms in the country of assembly, which may or may not comply with national environmental regulations currently in force, the Corporate Model looks to the manufacture’s commitment to environmental standards that may go above and beyond environmental compliance requirements and industry norms in the country of assembly.

The Corporate Model assesses specific corporate policies and practices to identify core environmental commitments that displace industry norms with a company’s environmental code that crosses all national borders.

Our 12 Corporate Model environmental indicators include:

Corporate Environmental Policy: managing corporation demonstrates the execution of an Environmental Management System (EMS) for all manufacturing facilities that meet the established industry standard. The benchmark industry standard is ISO 14001;
Supplier Environmental Policy: managing corporation requires, at minimum, 80% of all tier one suppliers to demonstrate the execution of an environmental management system that meets the established industry standard, with aggressive goals to bring all suppliers up to this standard. The benchmark industry standard is ISO 14001;
Product Life-cycle Assessment: managing corporation conducts life-cycle assessments of complete product line. The benchmark industry standard is ISO 14040;
Product Design and Development: managing corporation integrates environmental considerations in product design and development in accordance with the established industry standard. The established industry standard is ISO 14062;
Sustainability Report: managing corporation publishes an annual corporate report consistent with the Global Reporting Initiative (GRI) Sustainability Reporting Guidelines, or equivalent;
Efficient & Sustainable Energy Supply Strategy: managing corporation commits to and measures for efficient and renewable energy use throughout product development;
Efficient Water Supply Strategy: managing corporation commits to and measures for efficient and sustainable water use throughout product development;
Air Quality: managing corporation measures air quality impacts from manufacturing processes and establishes aggressive goals to minimize emissions;
Efficient Powertrains & Fuels: managing corporation incorporates efficient powertrains and alternative fuels in product offerings, including hybrid technologies;
Commitment to Electromobility Development: managing corporation demonstrates a commitment to electromobility by aggressively developing an electric vehicle accessible to the average consumer;
Zero Waste Facilities: managing corporation has landfill free manufacturing facilities on-line; and
Corporate Commitment to Biodiversity: managing corporation demonstrates a commitment to biodiversity through partnerships, land conservation efforts, wildlife protection and other.